Have you ever left a job because you were offered a better position or compensation by a competitor within the same industry? Many people are required to sign an agreement restricting their ability to work in competition to their current employer. These non-compete agreements, when presented at time of hire, during employment, or upon termination, resignation, or layoff, are based on the possibility that an employee might gain a competitive advantage by using knowledge of their former employer’s operations.
As a result, when an individual has decided to leave his or her current employment and transition to a position working for a company which directly competes with his or her current employer, there are contractual issues which must be considered.
During the term of a post-employment non-competition covenant, what are considered to be lawful acts in preparing to transition to working for a competitor and what is unlawful? Where does one draw the line separating lawful non-competitive preparatory planning to compete and prohibited direct competition? There is no definitive answer. Recent New York State case law has shed some light on the issue, however.
“Although an employee may, of course, make preparations to compete with his employer while still working for the employer, he or she may not do so at the employer’s expense, and may not use the employer’s resources, time, facilities, or confidential information.” Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F.Supp.2d 489 (S.D.N.Y. 2011).
Some examples of unlawful competitive actions include when an employee copies his employer’s business records for his own use; charges expenses to his employer that were incurred while acting in furtherance of his own self-interest; actively diverts his employer’s business for his own personal benefits or the benefit of others; or conspires to bring about the mass resignation of his employer’s key employees.
Although case law varies to some extent, it is clear that the language of the restrictive covenant (the non-compete) will dictate in determining what activities are considered impermissible competition.
Therefore, employers who desire to prevent departing employees from gaining a competitive advantage while still employed as well as employees who wish to learn what acts they are permitted to do in preparing to transition to a job with a competitor would greatly benefit from seeking counsel with the experience and knowledge to properly advise them of their rights.